Bond prices plunged in the early going as investors blanched at news reports of a congressional subcommittee hearing next week on a tax provision that could hurt foreign demand for U.S. bonds.

Some analysts saw only a temporary setback to the rally that has sent interest rates plummeting in recent months, saying rates have further to fall. Interest rates move in the opposite direction from prices.

The yield on the Treasury's bellwether 30-year bond, which fell for seven consecutive sessions, soared to 5.96% from a record low of 5.86% on Wednesday. Its price tumbled 1 7/16 points, or about $14.38 per $1,000 in face value.

It was the yield's biggest one-day jump since May 13, when it increased to 6.95% from 6.85%.

"I don't think this means the end" to the rally, said Kevin Flanagan, money market economist at Dean Witter, Discover & Co. "If we continue the slow-growth scenario, we will see investors come back into the market."

The House Ways and Means subcommittee is scheduled to take testimony Tuesday on a bill to eliminate the federal income tax exemption granted to foreign investors in Treasury securities. Foreign investment in the Treasury market has jumped this year.

A committee aide said the bond market's reaction was premature and that the bill is just one of many proposals before the subcommittee.

The bond market also had a negative reaction to a government report that the number of Americans filing first-time claims for jobless benefits dropped by 10,000 last week to the lowest level in more than four years.

Many economists had predicted in advance of the report that claims would be up last week by about 6,000.

Signs that the economy is improving are negative for the Treasury market because the Federal Reserve Board typically does not trim interest rates during periods of economic growth. Lower rates would tend to boost the value of bonds.

"Typically these developments would have been ignored. But we've had such a sharp run-up lately, it was viewed as a time to take profits," Flanagan said.

The federal funds rate, the interest on overnight loans between banks, was 3.0%, unchanged from Wednesday.

Stocks

Wall Street shrugged off some early weakness associated with the slump in bond prices and a corresponding jump in interest rates.

The Dow industrials registered minor changes most of the day and finished with an increase of 0.56 point to 3,589.49. Stocks rising in price outnumbered those declining by about 9 to 7 on the New York Stock Exchange. Volume on the floor of the Big Board came to 258.07 million shares, down from 283.10 million the day before.

On the foreign front, Germany's central bank cut key interest rates and other European central banks followed suit. The Bundesbank announced after its biweekly meeting that it was slashing the discount rate, the cheapest rate for loans to commercial banks, to 6.25% from 6.75%.

The rate reductions were welcomed by American investors because it is widely expected that lower rates in Europe would help revive stalled economic growth and eventually enhance profitability of the many U.S. companies that rely heavily on foreign revenue.

* NASDAQ-listed Intel rose 1 3/4 to 64 3/4 and led the system's list of active issues. The company said it has entered a preliminary agreement with MCI Communications to jointly develop ways to integrate personal computers and telephones.

* On the NYSE, volume was inflated by dividend-related trading in Hanson and Royal Dutch Petroleum. Hanson edged up 1/4 to 19 3/8 on turnover of more than 41 million shares, compared to average daily volume of 950,000 shares. Royal Dutch Petroleum jumped 1 1/8 to 101 5/8 on volume of 16.2 million shares, up from an average daily amount of about 586,000 shares.

* Glaxo Holdings ADRs rose 1 3/8 to 19 1/2 after the British drug company said its fiscal 1993 pretax profit jumped 17% from a year earlier.

* Citicorp gained 1 3/4 to 35 3/8 in heavy NYSE trading.

Stocks closed lower overseas. Frankfurt's DAX-30 index ended down 4.48 points at 1,880.81 and Tokyo's 225-share Nikkei average lost 92.61 points to close at 20,825.58. In London, the Financial Times 100-share average closed 4.2 points down at 3,031.2.

Other Markets

The dollar sank against the mark and other currencies after the German central bank announced its rate cut.

"You're going to have better numbers coming out of Germany and more reason to buy the mark," said Arnold Sherrer, chief trader at Royal Bank of Canada's office in New York. The dollar closed at 1.60 German marks in New York, down from 1.613 marks Wednesday.

In New York, the dollar finished at 105.43 Japanese yen, down from 105.60.

In precious metals trading, gold prices rose on the the New York Commodity Exchange. Gold for current delivery closed at $354.20 an ounce, up $3.00 from Wednesday. Silver gained 2.2 cents to end at $4.240 an ounce.

On the New York Mercantile Exchange, light, sweet crude for October delivery fell 6 cents to $16.97 a barrel.